Tomson Riviera Still Selling, Despite Property Bubble Anxiety

The peak of the Chinese real estate bubble has been predicted for some time now, but if the price that an apartment in Shanghai's Tomson Riviera complex recently fetched is any indication, buyers are still willing to pony up the big yuan. Late last year, a 600-square meter (6,450 square feet) apartment in Tomson Riviera sold for 96.09 million yuan ($19.6 million) to an unspecified but obviously wealthy buyer.

Shanghai, CHINA–The peak of the Chinese real estate bubble has been predicted for some time now, but if the price that an apartment in Shanghai’s Tomson Riviera complex recently fetched is any indication, buyers are still willing to pony up the big yuan. Late last year, a 600-square meter (6,450 square feet) apartment in Tomson Riviera sold for 96.09 million yuan ($19.6 million) to an unspecified but obviously wealthy buyer.

So someone’s still buying. Tomson Riviera developer Charles Tong, who could not be reached on Friday by MHN, told the New York Times early this month the he’s selling three or four apartments a month.

Tomson Riviera, a three-tower property in Pudong’s Lujiazui CBD opposite Shanghai’s Bund, began development in 2005, and got off to a slow start–reportedly only a handful of residences sold in the first few years. But there was no doubt from the get-go who the properties were for. According to the Shanghai Land Bureau, initially prices at Tomson Riviera were about 16 times the average sale price of residential property in the city.

Tompson Riviera

In 2009, the pace of sales at the complex picked up considerably–16 in the first half of the year alone. Currently the apartments in two of the towers are for sale, with the units in the other for rent. The apartments measure from 430 to 1,200 square meters, and besides the much-lauded views of Shanghai that they offer, each residence has its own entrance hall and private elevators, an elaborate security system that uses palm-recognition, and other amenities.

But will top-end properties such as Tomson Rivera be affected if Chinese residential property prices in general start a rapid retreat? It’s an open question, but popping real estate bubbles in other countries have, temporarily at least, affected the price of high-end properties–just ask movie actor Nicolas Cage, who bought high in the mid-2000s and is now being forced to sell low.

According to Colliers International, residential prices in Beijing and Shanghai now average as much as 60 percent higher than at the beginning of 2009. Throughout urban China, housing prices are the highest in the world measured by the ratio of price to income. On average, it takes 20 years’ worth of wages for an average household to buy a place to live in urban China; in Beijing, it takes 27 years’ worth, about five times the international average.

View from Tompson Riviera

The central government in Beijing is clearly leaning toward cooling down the country’s real estate market. Last month, the government cut the mortgage interest discount for first-time homebuyers and got rid of the discount for second-time homebuyers all together, and raised down payment requirements for second-timers to 60 percent, among other measures. Residential sales slowed down almost immediately as a result.

Still, it isn’t clear that such moves are permanent. “It seems we have seen this movie before,” writes economist and Chinese real estate market watcher Andy Xie. “Beijing has launched property tightening measures several times but it relaxed them just when they began to bite.”

Sales might slow down temporarily, Xie posits, but prices aren’t coming down for the moment because owners and developers believe that the central government will back off, bending to political pressure from local and regional governments whose revenue depends on increasing property values.